Discounts, Sales and Volumes – Don’t let these numbers fool you!

It’s the time of the year you shop for the next one year. Yes, Diwali is just around the corner!

With Flipkart, Amazon and Snapdeal leading the online scene, it’s raining festival offers all around!

(Side note: Look beyond these e-commerce giants you might find what you are looking for at a cheaper price!)

The background story

(Skip it if you already know)

If you call the e-commerce game in India as a battle between David and Goliath, Amazon would be the Goliath and Flipkart the David. They have been at each other for quite a long time. When Flipkart started Big Billion Sale in 2014, Amazon came up with Great Indian Festival.  And every (not only, but especially) Diwali season, they have been eating off each other’s plate. It all started because, they wanted to get people online to shop. In 2015, Flipkart even tried to get people on mobile to shop. And this time around they wanted people to make big purchases online* by promoting home electronics.

Let’s get to Now.

Despite their efforts to get people to shop online,

Right now just 1% of Indian retail is online, compared with 10% in China. (Source: Live Mint).

So, yes there is a room for a lot more players and many such sales.

Fundamentally what e-commerce companies are trying to do is change customer behavior and all of us know it is not an easy thing to do (if you don’t try changing your own habits!). By offering deep discounts, the e-commerce sites are triggering(discounts) a behavior(buy online) but if the trigger is needed every time to observe the behavior are the efforts even worth? And this bring us to,

Elephant in the room

bigsale

 

So, who is paying for it?

As a consumer you are not. The sellers may be, but not much. The reason I say not much is because, some sellers might markdown if the volumes are high. Then who has to?

E-Commerce Companies (Duh!)

Surely, they cannot do that with the Venture  Capital. I mean how long before VCs realize that their cash is burning their own pockets?

So how do they do it?

Building the ecosystem

Throwing such a big discount party takes quite a lot of effort. As a consumer you might be aware of ads popping up everywhere. Surely, there are invisible anchors that support the great purchase tsunami . I mean, we are looking at a temporary surge(quite huge) in volumes of traffic, transactions, deliveries and customer support calls. So, each of these big giants have to ensure that they have the proper ecosystem to support such huge numbers.

If we were to scratch the surface, we would be talking about:

  1. Data centers – to support the traffic and the applications
  2. Supply Chain – to make the products available on time to the customers at the lowest cost ie. have partnership with the sellers, warehousing and delivery
  3. Payment System – to ensure trust and easy of transaction
  4. People – to support systems for whole 24 hrs for 5 days

Both Flipkart and Amazon learned their lessons about having data centers (the website crash in 2014), partnership with sellers and false pricing. But more importantly, getting people online doesn’t mean getting people to their website. (Hence, the eating off each other’s plate analogy.) So the real story?

Let’s get to numbers.

(But not the ones you hear in the news.)

Over 70% Discounts. Over 1.5 million units sold. Rs. 1400 Cr in one day.

Sounds familiar?

Such fleeting numbers indicate very less about the value of the business. I mean with the big marketing budget you might expect a big number such as these. But it really doesn’t talk about the impact. Impact in terms of new customers, revenue (or loss) per customer and many more.

In order to understand the value we need to try and look at it from different perspectives:

  1. Consumer – I care about discounts and sub-consciously care about units sold (behaviorist calls it confirmation bias – everyone’s buying it).
  2. E-commerce – Never seen such huge numbers in my life! I am doing awesome! (That’s what I will tell the media, but secretly how far are we down on our cash flow?)
  3. Venture Capitalist – I worry about discounts but give me more data!!

That’s right. No VC would take any of these numbers to the face value because they do not give the whole picture.

Every campaign has a goal:

“What we want to do during Big Billion Days is provide incredible NPS (net promoter score) experience—one of the things we’re trying to do without increasing costs dramatically is how to keep the NPS incredibly high during the event. I primarily view this event not for revenue, but for customer experience,” said Ananth Narayanan, CEO of Myntra. (Source: Live Mint)

NPS is a very good measure. But that is not all. Especially if you were to look at campaigns at this scale. Here are a few metrics that will help us understand the impact of such sales better:

  1. Customer Interest – # of searches
  2. Customer Experience – NPS
  3. Customer Engagement – Time taken for purchase decision
  4. Customer Adoption – # of New Users, Average Value of Purchases (are they buying costlier products online)
  5. Customer Loyalty – Retention Rate, Repeat purchases.
interestovertime
Relative Interest ie a value of 50 means that the term is half as popular as others.

Though the above is not a comprehensive list, but it touches most of the aspects of a successful campaign mapping the customer journey from interest to loyalty.

So, next time some one comes with a sweeping number of Rs X million sales you should probably not jump in to conclusions but ask for more data.

* You may argue, that they have been doing that all along, but if you notice keenly, it’s been more this time around with better success.

**A crude assumption to make a point.

Featured Image Source: MarketingLand

 

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